As the global economic crisis continues amid the uncertain remedies of massive financial bail-outs and stimulus packages instituted in the developed world, the vulnerability of the economies of the developing world to these external shocks is quite considerable. The impact of the crisis on small island developing countries, and in particular the non-independent countries, takes on its own unique dimension. Benito Wheatley, Program Board Associate and Co-Chair of Youth Programs and Initiatives at the Institute of Caribbean Studies in Washington, DC. examines the “Global Economic Slowdown and Economic Security in the British Virgin Islands” in the following analysis which is published below, with the kind permission of Mr. Wheatley.
The recent global economic slowdown has raised the critical issue of economic security in the British Virgin Islands. The fragile relationship of the territory to the global economy places it in a precarious position. The BVI exhibits all the trappings of a modern economy, but lacks the productive capacity to support the modern lifestyle enjoyed by its inhabitants.
The deficit between what the territory can produce and local demand for modern goods and services, necessitates the importing of foreign products to meet the demands of a growing population. The bulk of these imports are financed by income generating activities in the tourism and financial services sectors, upon which the economy is based. It is by virtue of this relationship that the economic security of the BVI is threatened.
The current downturn in the global economy exposes the BVI’s vulnerability to swings in the global economy. When the cost of oil rises or the price of food escalates on the world market, it creates a ripple effect that leads to a spike in prices and higher costs in the local marketplace. Likewise, when a global economic downturn hits primary markets such as the United States or the United Kingdom, it reduces their overall purchasing power, which restricts consumer spending and decreases the amount of income available for leisure, travel, and entertainment.
This directly affects the British Virgin Islands, whose tourism sector is dependent upon tourists from primary markets to feed the hotel, boating, and other industries that are the engine of economic growth in the territory. The projected slowdown in the tourism sector endangers the financial security of the 25 percent of the working population that depend upon its industries for their livelihood.
The BVI’s economic dependence forces a fundamental rethinking of the economy, which in current form raises serious questions about the wisdom of relying upon tourism for long-term economic growth. It also raises serious concerns about the reliance of the territory on imports to sustain daily life on the islands. The financial services sector at this stage does not appear to be as susceptible as tourism to fluctuations on the world market, but none the less requires close monitoring considering the ongoing turbulence in capital and financial markets around the globe.
The impact of high fuel costs and rising food prices have only heightened the degree of economic uncertainty in the world. Already there is a shortage of basic foods upon which people depend, including rice. Notably, high food prices in the BVI have turned arguments against the production of food locally on their face. At current price levels it is now financially feasible and profitable to engage in local food production. As a matter of food security, the Government must encourage the strategic development of a food production industry to ease the financial pressure of high food prices.
Given the BVI’s current level of dependence on the outside world for economic survival, a careful strategy must be devised by which the territory can reduce its exposure and vulnerability to external shocks to the global economy and price fluctuations on the world market.
Some consideration must be given to creatively diversifying the economy, ranging from the sectors and industries upon which the BVI depends for economic growth and development, to the trade partners with which the territory engages in commerce and trade. Over-reliance on any one sector, industry, market, or trade partner could be detrimental to the BVI in the event of a sudden economic downturn such as that being experienced by the United States.
This was the case of several Caribbean countries in the 1990s which were overly dependent upon the production of sugarcane and bananas for export. A single-sector economy or single-industry economy is not in the strategic or economic interest of the British Virgin Islands. The territory would be better served having a wider range of economic arrangements and trade relationships than is presently the case.
Economic security is of paramount importance to the BVI. The great challenge facing the territory is to determine how best to manage the fragile economic relationship between the islands and the global economy. While it may not be possible to achieve total economic security, arguably uncertainty can be reduced through the diversification of the economy. Strategies in support of this goal will go a long way toward creating a stronger and more economically secure British Virgin Islands.